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Appscatter: Significant acquisition and fund-raise – history repeating itself so far

By Cynical Bear | Wednesday 11 April 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I initiated coverage on Appscatter (APPS) when it came to market last September with a few warning signs and a nervousness that history could repeat itself to the detriment of its shareholders. Well seven months in and a potential acquisition accompanied by a massive fund-raise announced (obvs), I thought I should update my thoughts.

As a reminder Appscatter’s CEO, Philip Marcella, and its Sales Director, Jason Hill, were two of the key individuals in a previous app developer business bought to AIM in 2000, namely RMR plc, at a valuation of £64 million, raising about £12 million all of which was spent in about two years and the business came to an end. I previously wondered whether the same would happen again here.

Appscatter joined AIM in September raising £9 million (gross) at 65p and having dropped a bit initially, was above 80p recently and it has just announced a raise of £15 million at 70p to fund the £9.5 million cash consideration element of a potential acquisition plus working capital for the enlarged business.

In terms of Appscatter’s financial performance, it has only issued its interims to end-June 2017 which weren’t that meaningful although it did state at that time that cash as at 25 September was £6.5 million. The recent acquisition announcement also included a trading update for the full year stating that it expected revenues to be £1.9 million and the loss to be about £6.5 million – a loss of £4.2 million in the second half.

Assuming 2018 is on a similar trajectory, it doesn’t take a maths genius to work out that there was unlikely to be a huge amount of cash left by end-June 2018, hence the need for the cash raise. It is always a significant red flag for me if a business needs to come back to the market to raise further funds within a year of going public. I understand that this is in the context of an acquisition; however, there is an additional £5.5 million being raised on top of the cash required for the deal which I assume is needed to get the going concern statement signed off in the full year accounts.

Looking at the deal in a bit more detail, the total consideration for the acquisition of Priori Data is £13.5 million of which £4 million is in paper. This looks a good deal for the sellers considering it lost about €400,000 on €1 million of revenue last year; however, it provides app intelligence and I can see how it could fill out the Appscatter product offering.

Post-funding, the valuation of the combined business will be over £60 million which looks crazy high to me for a business that is yet to prove that there is a significant market for developers in being able to access the 75 or so app stores outside of the main ones.

In summary, this looks to me to be playing out exactly as we saw 18 years ago with RMR although one can see the effect of inflation as whereas RMR only managed to raise £12 million before imploding, Appscatter is already up to £24 million raised in a mere seven months!

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